Venezuela Launches First Nuke In Currency Wars, Devalues Currency By 46%

Tyler Durden's picture




 

While the rest of the developed world is scrambling here and there, politely prodding its central bankers to destroy their relative currencies, all the while naming said devaluation assorted names, "quantitative easing" being the most popular, here comes Venezuela and shows the banana republics of the developed world what lobbing a nuclear bomb into a currency war knife fight looks like:

  • VENEZUELA DEVALUES FROM 4.30 TO 6.30 BOLIVARS
  • VENEZUELA NEW CURRENCY BODY TO MANAGE DOLLAR INFLOWS
  • CARACAS CONSUMER PRICES ROSE 3.3% IN JAN.

And that, ladies and gents of Caracas, is how you just lost 46% of your purchasing power, unless of course your fiat was in gold and silver, which just jumped by about 46%. And, in case there is confusion, this is in process, and coming soon to every "developed world" banana republic near you.

 

and just as we (and Kyle Bass) have warned - this is what happens to the nominal price of a stock market as currency wars escalate... how do those US investors who flooded Venezuela with cash feel now? bringing back those VEF gains is going to hurt...

The chart above is a free lesson in nominal vs real: the hardest lesson for some 99.9% of the world's population to grasp. One person who certainly knows how to devalue a currency in real terms FDR, whose 70% devaluation of the USD courtesy of executive order 6102, is merely an appetizer of what is about to be unleashed upon the US.

From Bloomberg:

Venezuela devalued its currency for the fifth time in nine years as ailing President Hugo Chavez seeks to narrow a widening fiscal gap and reduce a shortage of dollars in the economy.

 

The government will weaken the exchange rate by 32 percent to 6.3 bolivars per dollar, Finance Minister Jorge Giordani told reporters today in Caracas. The government will keep the currency at 4.3 per dollar for some products, he said.

 

A spending spree that almost tripled the government’s fiscal deficit last year helped Chavez win his third term. Chavez ordered the devaluation from Cuba, where he is recovering from cancer surgery, Giordani said. Venezuela’s fiscal deficit widened to 11 percent of gross domestic product last year from 4 percent in 2011, according to Moody’s Investors Service.

 

The move can help narrow the budget deficit by increasing the amount of bolivars the government gets from taxes on oil exports. While a weaker currency may fuel annual inflation of 22 percent, it may ease shortages of goods ranging from toilet papers to cars.

 

In the black market, the bolivar is trading at 18.4 per dollar, according to Lechuga Verde, a website that tracks the rate. Venezuelans use the unregulated credit market because the central bank doesn’t supply enough dollar at the official rates to meet demand.

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Fri, 02/08/2013 - 17:27 | 3227245 Non Passaran
Non Passaran's picture

Yes, and their rules say that paper is now 46% (or whatever %) cheaper. 

So the local dicator basically decided your PM holidings are more valuable.

There's nothing to not like about that.

Fri, 02/08/2013 - 20:07 | 3227646 Snoopy the Economist
Snoopy the Economist's picture

Let's see...

When you sell your gold you need to pay all those taxes on the big money you just made on that investment....

and you get paid back in devalued currency - so that was a great deal!

Fri, 02/08/2013 - 20:07 | 3227647 Snoopy the Economist
Snoopy the Economist's picture

Let's see...

When you sell your gold you need to pay all those taxes on the big money you just made on that investment....

and you get paid back in devalued currency - so that was a great deal!

Fri, 02/08/2013 - 16:42 | 3227037 JuliaS
JuliaS's picture

Take that, Japan!

Fri, 02/08/2013 - 16:43 | 3227038 jomama
jomama's picture

what this tells me is that i should get loans on a new car and new house, watch the currency tank, and pay them off with my then sky-high stack!

Fri, 02/08/2013 - 16:44 | 3227040 drivenZ
drivenZ's picture

there are official FX rates and then there are real FX rates. This is an official FX rate change. The real FX rate has been way higher(lower) than 6.30 for some time now. So no, the people didnt lose 46% overnight they already lost it and then some.  

Fri, 02/08/2013 - 16:44 | 3227041 surf0766
surf0766's picture

How does this affect crude prices?

Fri, 02/08/2013 - 16:55 | 3227104 Meat Hammer
Meat Hammer's picture

Up 46% in Caracas

Fri, 02/08/2013 - 16:44 | 3227042 LeisureSmith
LeisureSmith's picture

Banana split.

Fri, 02/08/2013 - 16:45 | 3227043 Iconoclast
Iconoclast's picture

oil bitchez, they have it therefore they win. Quicker/cheaper route for the USA to take it off them rather than heading off to the M.E. though, can't understand why anyone in the past few administrations hasn't introduced a form of helicoptered in democracy, too close to home, fear of reprisals?

Fri, 02/08/2013 - 16:57 | 3227107 A. Magnus
A. Magnus's picture

No, the Chinese told Washington in no uncertain terms that they will cut our naval supply lines at the Panama canal (which they now run) and they will crash our bond market overnight if Chavez's oil gravy train gets fucked with in any way. The dick-sucking cock bites in DC are pussies when it comes to making war with ANY country that can actually fight back...

Fri, 02/08/2013 - 17:23 | 3227234 Non Passaran
Non Passaran's picture

Now please explain how would the "crashed" US bond market hurt the US.  The Fed can keep buying bonds for another 5 years without any problem.

While you're at it, also explain how would a "crashed" US bond market be useful to China.

--

You're a great comedian.

Fri, 02/08/2013 - 17:58 | 3227315 helping_friendl...
helping_friendly_book's picture

easy. Start selling US bonds on the secondary market for much less and drive yields up. US will crash instantly as everyone runs for the f-ing exit.

Fri, 02/08/2013 - 18:13 | 3227359 Common_Cents22
Common_Cents22's picture

so you would sell out your portfolio at big losses to prove a point?

Fri, 02/08/2013 - 23:14 | 3228083 moonstears
moonstears's picture

I think China maybe uses US T-bills a colladeral to borrow, to buy,... oh, African mines, oilfields, and Canadian mines, oilfield interest(see pipeline Obama squashed) etc.

Fri, 02/08/2013 - 16:44 | 3227046 syntaxterror
syntaxterror's picture

Bernanke devalued by 46% too. Big fucking deal.

Fri, 02/08/2013 - 16:51 | 3227079 Dr. No
Dr. No's picture

I think the offical number is 97% since the FED was at the switch.

Fri, 02/08/2013 - 16:48 | 3227065 Strange-Currencies
Strange-Currencies's picture

So Venezuela devalues... Is that a big deal?  Is that front-page news?  Doubt it.  PDVSA does not sell its oil for bolivars, or whatever they call their funny money.  It sells it for dollars.  So what's the big deal, ZH?  Unless some of you guys are Venezolanos, in that case I feel for you.

 

Fri, 02/08/2013 - 16:49 | 3227069 Kaiser Sousa
Kaiser Sousa's picture

"Well Mr. Chairman....get to work...."

Fri, 02/08/2013 - 16:54 | 3227098 Dr. No
Dr. No's picture

The one advantage the FED has is the print controls are manned by private sector.  Insomuch as it is predicatable the devaluation of the USD will be slow and steady in order to line the pockets of the private share holders.  This is the "lesser evil" of a government controlled currency printing press which is turned on and speed adjusted accrording to the political winds of dancing with the stars.

Fri, 02/08/2013 - 16:50 | 3227076 gringo28
gringo28's picture

It's a 31% devaluation; not a 46% devaluation.

Fri, 02/08/2013 - 16:54 | 3227101 Dr. Engali
Dr. Engali's picture

You're backwards on your math. You divide the difference from where you began,not where you ended up.

Fri, 02/08/2013 - 17:54 | 3227302 Yen Cross
Yen Cross's picture

 Sweetness.  Dr.E.

Fri, 02/08/2013 - 16:55 | 3227102 ziggy59
ziggy59's picture

Delta = 2
2/4.3 x 100= 46.5%

Fri, 02/08/2013 - 21:26 | 3227845 machineh
machineh's picture

Old rate: (1 dollar / 4.3 bolivars) = US $0.2325

New rate: (1 dollar / 6.3 bolivars) =US $0.1587

New bolivar USD value of $0.1587 is 68.26% of its old USD value of $0.2325, or 31.74% less.

If you're counting in dollars, and I am.

Sat, 02/09/2013 - 08:01 | 3228414 overmedicatedun...
overmedicatedundersexed's picture

this from the country that repatriated it's gold first..now devaluation first..who will follow or defacto devalue well that's a long list..fiat magic making everyones labor a negative value, except those tbtf and central banksters..get a job with the FED or some abc agency in DC. you will be protected, otherwise good luck.

Fri, 02/08/2013 - 17:37 | 3227203 Banksters
Banksters's picture

Stay away from bankers, you are putty in their hands.

Fri, 02/08/2013 - 16:52 | 3227086 Laser Shark
Laser Shark's picture

[Deleted]

Fri, 02/08/2013 - 16:52 | 3227088 ziggy59
ziggy59's picture

They waited to get their gold first.. Then WHAM!

Fri, 02/08/2013 - 17:19 | 3227209 Non Passaran
Non Passaran's picture

What difference does it make what was done first?

Fri, 02/08/2013 - 16:52 | 3227090 Dr. Engali
Dr. Engali's picture

How long before Japan finally decides to bite the bullet and devalue by 200% ?

Fri, 02/08/2013 - 16:57 | 3227118 Yen Cross
Yen Cross's picture

 Dr. E. I'm not so sure how good you are at reading charts.  usd/jpy is on hold. Abe has been warned.

Fri, 02/08/2013 - 16:59 | 3227124 rubearish10
rubearish10's picture

Nope. Japan alresdy declared the Yen has fallen too much. "So it is written, so it will be truth".

Fri, 02/08/2013 - 17:01 | 3227134 Yen Cross
Yen Cross's picture

Think before you comment. Ed;

Fri, 02/08/2013 - 18:22 | 3227383 secret_sam
secret_sam's picture

How would they devalue by 200%?  Pay you to take their yen?

Fri, 02/08/2013 - 16:53 | 3227093 Inthemix96
Inthemix96's picture

This shit is better than real life.......

Hang on a minute..........

Fuck it, never mind?

Fri, 02/08/2013 - 16:53 | 3227094 Colonial Intent
Colonial Intent's picture

OT.

http://www.aljazeera.com/news/asia-pacific/2013/02/201328151250783405.html

Painting by numbers?

China was one press of a button away from war with japan.

Fri, 02/08/2013 - 16:57 | 3227117 Unprepared
Unprepared's picture

**** BREAKING ****

 

B.Shalom.B announced that he's devaluing the USD by 40% against the USD.

Fri, 02/08/2013 - 17:25 | 3227238 hooligan2009
hooligan2009's picture

heh...umm....wait....ok...heh! 

Fri, 02/08/2013 - 16:59 | 3227123 Meat Hammer
Meat Hammer's picture

The timing of all of the recent events just seems a bit.....coordinated.

Fri, 02/08/2013 - 17:00 | 3227127 rubearish10
rubearish10's picture

Things are not what they seem. Nobody knows nottin'!

Fri, 02/08/2013 - 17:06 | 3227133 waterwitch
waterwitch's picture

So did the Iranian finance minister who tried to bring in 300 M bolivar check into Iran and got knabbed, know anything about this? :D

So much for front running (literally):

 

http://www.zerohedge.com/news/2013-02-03/former-iranian-central-bank-head-caught-smuggling-70-million-bank-venezuela-check-ge

Fri, 02/08/2013 - 21:26 | 3227847 fuu
fuu's picture

It was into Germany.

Fri, 02/08/2013 - 17:01 | 3227137 azengrcat
azengrcat's picture

So you're saying they created 1.85 times more wealth?

Fri, 02/08/2013 - 18:13 | 3227360 ThirdWorldDude
ThirdWorldDude's picture

Carretillas, perraz!

Fri, 02/08/2013 - 17:05 | 3227146 frenchie
frenchie's picture

boom...

Fri, 02/08/2013 - 17:06 | 3227155 Dr. Engali
Dr. Engali's picture

Where is Whiteshadowmovement? this is why you hold precious metals as part of your portfolio.

Fri, 02/08/2013 - 17:09 | 3227165 Spastica Rex
Spastica Rex's picture

Doc -

More noise, or is this really interesting?

Fri, 02/08/2013 - 17:15 | 3227189 Dr. Engali
Dr. Engali's picture

Right now it's just noise, but it's the inevitable path of all debt ridden fiat currencies.

Fri, 02/08/2013 - 21:54 | 3227916 Whiteshadowmovement
Whiteshadowmovement's picture

Hey doc, i think my comment here would be that we need to context what they are devaluing against: namely the usd. As long as you have dollar supremacy (by the way do you know the fofoa article i referenced) and beranke is in control of markets, im just saying it wouldnt be a shocker if paper gold is the one hard asset that underperforms most others, and that through protracted attacks on market psychology, bernanke could eventually keep it there, which would bleec into the bullion market over time. See ya monday guys

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